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The Tax Treatment of Travel Expenses

The Tax Treatment of Travel Expenses

Published: March 18, 2016

If you schedule a business trip to a beautiful location that has some fun things to do and see, it often makes sense to pencil in some vacation days. For business owners and self-employed individuals, transportation costs to and from a domestic destination are 100% deductible, but only if the primary purpose of the trip is for business.

Here are some general guidelines for writing off travel expenses when business and vacation time overlap. As always, be sure to consult with your tax professional before you take any specific action.

Count the days. To demonstrate that a trip is primarily for business, the days dedicated to business must generally outnumber personal days. Any day when your time is spent mainly on business activities during normal working hours counts as a business day, but so do weekends and holidays that fall between business days. If you extend your stay over a weekend to take advantage of cheaper airfares, the extra days also count as business days.

Related expenses. You may also be able to deduct other ordinary and necessary expenses for the business days mentioned above, including lodging, hotel tips, 50% of meals, seminar and convention fees, and taxi fares. However, if you extend your stay or take a side trip for personal reasons, out-of-pocket expenses for leisure days are not deductible.

Travel expenses for family members who accompany you on a business trip are not deductible, unless they are your employees and had a justifiable business reason for going. Trips taken to conventions and seminars held at resort areas may be given very close scrutiny by the IRS, especially if you take family members with you. Be prepared to show how attendance at the event benefits your trade or business.

Foreign travel. The rules are similar for combined business-vacation trips outside the United States if the time spent abroad was less than a week (not counting the day you leave). However, for trips abroad lasting more than one week (not counting the day you left but counting the day you returned), you can deduct allowable costs only if less than 25% of your total time was spent on nonbusiness activities.

Documentation matters. Your written record should show the amount of each expense for items such as transportation, meals, and lodging. Include details such as departure and return dates, the number of business days, the name of the city, and the business reason for the travel. Be sure to keep documentation such as receipts and credit-card bills to back up your deductions.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2016 Emerald Connect, LLC.